Secoo Holding Limited's (SECO) CEO Richard Li on Q3 2020 Results - Earnings Call Transcript

Dec. 28, 2020 1:25 PM ETSecoo Holding Limited (SECO)
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Secoo Holding Limited (NASDAQ:SECO) Q3 2020 Results Earnings Conference Call December 28, 2020 8:00 AM ET

Company Participants

Jingbo Ma - Board Secretary

Richard Li - Founder, Chairman and CEO

Shaojun Chen - Chief Financial Officer

Conference Call Participants

Operator

Hello, ladies and gentlemen. Thank you for standing by for Secoo Holding Limited’s Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference call is being recorded.

I will now turn the call over to your host, Ms. Jingbo Ma, Board Secretary of the company. Please go ahead, Jingbo.

Jingbo Ma

Hello, everyone. And welcome to the third quarter 2020 earnings conference call of Secoo Holding Limited. The company’s results were issued via Newswire services earlier today and have been posted online. You can download the earnings press release and sign up to the company’s e-mail alerts by visiting the IR section of our website at ir.secoo.com.

Mr. Richard Li, our Founder, Chairman and the Chief Executive Officer; and Mr. Shaojun Chen, our Chief Financial Officer, will start the call with their prepared remarks followed by a question-and-answer session.

Before we continue, please note that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties. As such, the company’s results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties is included in the company’s registration statement on Form F-1 and Form 20-F as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Please also note that Secoo’s earnings press release and this conference call includes discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. Secoo’s earnings press release contains a reconciliation of the unaudited non-GAAP measures to the audited most directly comparable GAAP measures.

I will now turn the call over to our Chairman and CEO, Mr. Richard Li. Please go ahead.

Richard Li

Hello, everyone and thank you for joining us today. We are pleased to have maintained the operational growth in the third quarter of 2020, highlighted by GMV growth of 12.5% year-over-year to RMB4.12 billion, supported by our exceptional technologies capacity in AI, Big Data and cloud services.

As long as our well-established high-end supply chain system across the globe, we felt our self uniquely positioned to capture the booming e-retail market opportunities attempting from the rising adoption of online shopping is the aftermath of pandemic.

As the go to luxurious e-commerce platform in China, we are not just facilitating the digital transformation for domestic and foreign brands, but also providing numerous reliable online shopping options for a growing number of Chinese consumers who are perceiving the life style that feature array of high-end goods and premium services.

In particular, our ongoing efforts to make strategic focus on key brands not only allow us to generate universal brand awareness in the luxury e-commerce space, but increases the average spending per customer.

Since the beginning of the third quarter, we continue our efforts to roll up a series of online shopping festivals, including Secoo anniversary sales Festival on July 7th, the Chinese Valentine’s Day campaign in August and outlets offering promotional campaign in September. These festivals featured personalized and the efficient AI-driven marketing approaches alongside our technological innovations and high-scale fashion company initiative, which also focusing on operation of key brands. All these efforts have contributed to the loyalty of our existing customers and motivated them to purchase repeatedly on our platform effectively boosting the GMV in the third quarter.

In addition, Secoo maintained momentum in the Chinese traditional e-commerce promotion event Double-eleven product that prevail our top-selling or the highly sought-after product. Heightened efforts to host an inter brand sales campaigns and the offering of one-on-one services to our VIP customers. During the event, the GMV from presales of top-selling or highly sought-after product improved by 40% year-over-year. Meanwhile, through brand campaigns, Chanel and Artemest each grow their sales more than 100% year-over-year, while sales for Bulgari, York and Mongery [ph] grow over 30% each year. Meanwhile we beat up our intelligence empowered pricing strategy and advanced customer services to promote customers with higher spending power to take orders and increase average transaction value per order.

Furthermore, we have been constantly striving to extend and elevate our relations with brands, while bolstering our core platform capacity in the high-end fashion space. Since the third quarter of this year, we have established the direct corporation with a total of 181 new brands such as Kweichow Moutai and [inaudible].

Furthermore, we continue to strengthen relations with top brands though various collaborations such as the day event co-hosted by Secoo and all brands. This event have seen brands expand their online retail marketing rapidly especially benefiting some high-end customer base, reputable brand presence, advanced technology capacities and the diverse traffic support.

For example, our official brand partner Roger Vivier maintained satisfying online sales performance with the higher average selling per customer in Secoo flagship store. Their seasons collections are available for purchase. There is strong demand of Secoo’s high-end customers augmented sales of Roger Vivier are in the third quarter resulting in 109% year-over-year increase in GMV.

In September, Secoo formed the direct cooperation with Kweichow Moutai, China’s most prestigious liquor brand making the highly product the 53-degree Moutai Flying Fairy available on Secoo. This collaboration reflects an advantage from Kweichow Moutai and Secoo they will not only extent the Kweichow Moutai’s traditional sales and marketing channel through integrated online and offline platform, but also provide a premium purchase channel to reach the premium demand from Moutai fans.

Furthermore in December, Secoo and Kweichow Moutai co-hosted an offline Moutai promotion event in Beijing which featured a theme of looking for the best liquor in China to attract and gather early luxury brand’s loyal fans along with VIP Secoo members. This event showcased a sampling of different series of Kweichow Moutai liquor to allow participants to enjoy the lender and distinctive culture along with streamers.

Chinese eco brand and exterior Moutai’s brand’s huge mission and valuable is barring a better high collection life through these relations. Since 2018, Secoo has been expanding its high-end product portfolio to beverage in Secoo and created a broad range of high-end liquor product offerings including Chinese liquor black wine important -- imported alcohol cocktails hosting multi-brand value on our platform. It’s a very significant supplement to our at least Secoo product offering.

This quarter we stacked up our efforts for the livestreaming of our luxury retail fully leveraging Secoo’s extensive experience in the luxury industry along with its supplying chain advantages. We are also keeping our corporation with the most popular social networking platform such as the Douyin/Kuaishou supply our own livestreaming ecosystem to support the luxurious consumption.

In December, livestreaming production days for luxury group was established at Secoo’s Beijing headquarters as that’s really Secoo becoming of choices for the livestreaming selling that grow our Secoo.

Through the livestreaming base, we facilitated the daily broadcast session of MCN agencies and the broadcaster officially recommended by Douyin/Kuaishou, as well as livestreaming hosted by the mid tier and most popular KOLs including a single livestreaming event that generated almost RMB10 million of GMV.

And so in platform Secoo has been running livestreaming and selling activities through eight accounts so far. Also since September, the company began to extend its livestreaming sales operations from their owned backlog of Secoo to a wider range of product category. We also support cooperation with top KOLs at the event such as growing highly or livestreaming that.

It is worth noting that Secoo offering sample library of more than 1,000 products -- luxury products for livestreaming sessions providing KOLs from Kuaishou and Douyin with wide selection of merchandise and with them we rollout new products on rolling basis for big e-commerce.

Meanwhile our efforts to built Secoo’s luxury and special content marketing strategy across a full spectrum of online channels including Douyin/Kuaishou content media account is paid up with a growing fan base.

Specifically, they have created a number of promotional videos and each was able to attract over many views, a strong indicator of support for our livestreaming sales and brand promotion. So far 92.6% of active users of the Secoo entities have at least watched our livestreaming session and with users exhibit strong willingness to buy and started purchasing power.

Looking ahead, Secoo will continue to reach content optimized ones and enhanced services quality of its livestreaming business. Given our core capacity in supply and chains, key brand relations and AI powered technology advancements and customer engagements capacity Secoo aim to advance its strategy to build go to luxury platform and validate global partners by reaching more high-end Chinese consumers.

Secoo will bring more luxury and high-quality global foods to its network to meet a growing demand while upscale products in the domestic market seeking new opportunities as it harnesses the massive potential of China’s high-end e-commerce industry.

In order to create the targeted shopping platform for luxurious consumers, Secoo expect to leverage its livestreaming production base for luxurious e-commerce to attract small broadcasters to participate, as well as increase user traffic, which will finally allow luxurious shoppers who enjoy high-quality high-end products and premium shopping services even staying at home.

In addition, Secoo will continue to invest in building sophisticated value chain, brand new product selection, merchandising operations, customer services and after sales services. These efforts will enable Secoo to provide most valuable standardized services for consumers, broadcasters, brand partners and livestreaming platform, while increasing efficiency and provides empowerment to the entire luxurious e-commerce sector.

With that, I will now turn the call over to our CFO, Mr. Shaojun Chen, who will discuss our key operating metrics and the financial results.

Shaojun Chen

Thank you, Richard, and hello, everyone. In the third quarter, amid a recovering COVID-19 damage in Mainland China, we delivered net income of RMB28.8 million representing an increase of 252.5% quarter-over-quarter.

Our sequential improvement in profitability demonstrates the resilience of our business model to navigate through market dynamics. Going forward, we remain confident to capture immense potential in China’s online high-end consumer market in the long run.

Now I’d like to walk you through our detailed financial results in the third quarter of 2020. GMV increased by 12.5% to approximately RMB4.12 billion for the third quarter of 2020 from RMB3.66 billion for the third quarter of 2019.

Total number of orders increased by 7.1% to approximately RMB1.11 billion for the third quarter of 2020 from around RMB1.04 million for the third quarter of 2019.

Total revenue for the third quarter of 2020 was approximately RMB1.37 billion, compared with RMB1.94 billion in the third quarter of 2019, primarily attributable to the increase in the proportion of business contribution from our marketplace platform business that’s recognized revenue under net basis and short supply of some luxury goods and delayed logistics services due to the impact of COVID-19 pandemic.

Cost of revenues decreased by 29.1% to RMB1.14 billion for the third quarter of 2020 from RMB1.61 billion for the third quarter of 2019, primarily due to the decrease in total revenues.

Gross profit was approximately RMB231 million for the third quarter of 2020, compared with RMB329 million for the third quarter of 2019. This decrease was mainly due to the decrease in total revenues and the increase in discount on sales to boost customers’ willingness to purchase during the pandemic.

Operating expenses decreased by 22.3% to RMB182 million for the third quarter of 2020 from RMB235 million for the third quarter of 2019.

Now I would like to walk you through the company expense items in detail. Our fulfillment expenses decreased by 16.3% to RMB41.5 million for the third quarter of 2020 from RMB49.6 million for the third quarter of 2019. The decrease was primarily attributable to the decreased freight and staff costs during the period.

Our marketing expense decreased by 47.6% to RMB58.1 million for the third quarter of 2020 from RMB111 million for the third quarter of 2019, primarily due to the reduced online and offline advertising expenses, as well as the decreased staff costs.

Technology and content development expense increased by 8.8% to RMB28.5 million for the third quarter of 2020 from RMB26.2 million for the third quarter of 2019. The increase was primarily due to the continuous investment in the technology department in order to strengthen our technological capabilities to improve operating efficiency.

Our general and administrative expenses increased by 13.2% to RMB54.1 million for the third quarter of 2020 from RMB47.8 million for the third quarter of 2019. The increase was primarily attributable to the additional provisions for bad debts, over which the company considered many factors in assessing the collectability, such as the financial conditions of the debtors given the impact of the COVID-19 pandemic, among others.

Our income from operations was RMB48.3 million for the third quarter of 2020, compared with income from operations of RMB94.9 million for the third quarter of 2019.

Non-GAAP income from operations, which excludes share-based compensation expenses for the third quarter of 2020 was RMB50.8 million, compared with RMB97.5 million for the third quarter of 2019.

We recorded net income of RMB20.8 million for the third quarter of 2020, compared with RMB62.1 million for the third quarter of 2019.

Non-GAAP net income, which excludes share-based compensation expenses for the third quarter of 2020 was RMB23.2 million, compared with RMB64.7 million for the third quarter of 2019.

As of September 30, 2020, the company had cash, cash equivalents and restricted cash of RMB794 million.

This concluded our prepared remarks. We will now open the call to questions. Operator, please go ahead.

Question-and-Answer Session

Operator

[Operator Instructions]

Operator

As there are no questions, I’d now like to turn the call back over to the company for the closing remarks.

Jingbo Ma

Thank you once again for joining us today. If you have further questions, please feel free to contact Secoo’s Investor Relations through the contact information provided on our website or The Piacente Group Investor Relations whose information is also on our website.

Operator

This concludes today’s conference call. You may now disconnect your line. Thank you.

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